2025 (2) TMI 1034 - AT - Income Tax

Unexplained investment u/s 69 - assessee made cash-deposits in a bank a/c during demonetisation - HELD THAT - Admittedly the assessee made deposit on 15.11.2016 immediately after declaration of demonetisation on 08.11.2016. The assessee is claiming that the impugned deposit was made from cash balance available in books of his business at the time of declaration of demonetisation. To show this factual aspect the assessee filed Cash-Book and other documents to AO during assessment-proceeding and the same are also placed in Paper-Book and referred by Ld. AR during hearing. On perusal of assessment-order one thing is clear-cut that the AO has not rejected assessee s books of account even the AO has not pointed out a single flaw or deficiency in assessee s books. Assessee paid VAT on sale of such gold. The impugned purchase transaction of gold from father and subsequent sale thereof were duly informed to VAT authorities in VAT return and the same were accepted. The gift was made due to love and affection and a gift-deed executed by father was also filed to AO and the same is a part of Paper-Book as well. Therefore the assessee is very correct in claiming that the gift transaction is nothing to do with purchase transaction and the two transactions are altogether independent of each other. The AO has made a wrong notion that there is a circular transaction by way of gift. It is also noteworthy that the AO has neither disallowed the purchase made from father nor made any addition qua the gift received from father. Thus the transactions of purchase and receipt of gift are not disturbed by AO. AO has however made addition treating the deposit in bank a/c as unexplained whereas the source of deposit in bank a/c is very much available in Cash-Book of assessee and the same Cash-Book is not even rejected by AO. It is also noteworthy that the AO has made addition u/s 69 even while accepting the books of account of assessee the books of account in which the impugned cash deposit in bank a/c is recorded. Nobody can dispute that the section 69 applies only when a sum is not recorded in books of account whereas the position of present case is just opposite in as much as the impugned deposit is already recorded in cash-book accepted by AO. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment revolve around the following issues:

1. Whether the delay in filing the appeals by the assessees should be condoned.

2. Whether the cash deposits made by the assessees during the demonetization period constitute unexplained investments under Section 69 of the Income-tax Act, 1961.

3. Whether the transactions involving the purchase of gold from the father's proprietorship concern and subsequent gifts from the father to the assessees constitute circular transactions aimed at tax evasion.

ISSUE-WISE DETAILED ANALYSIS

1. Condonation of Delay

- Relevant Legal Framework and Precedents: Section 253(5) of the Income-tax Act empowers the ITAT to admit an appeal after the expiry of the prescribed time if there is a "sufficient cause" for the delay. The Supreme Court in Collector, Land Acquisition Vs Mst. Katiji emphasized a justice-oriented approach favoring substantial justice over technical considerations.

- Court's Interpretation and Reasoning: The Tribunal considered the explanations provided by the assessees regarding the delays, which were attributed to the counsels handling the appeals. In both cases, the Tribunal found that there was no lethargy or mala fide intention on the part of the assessees.

- Conclusions: The Tribunal condoned the delays in both appeals, allowing them to be heard on merits.

2. Unexplained Investments under Section 69

- Relevant Legal Framework and Precedents: Section 69 of the Income-tax Act deals with unexplained investments, where any unexplained amount found in the books can be added to the income of the assessee. The Tribunal referenced prior decisions, including Fine Gujarwala Jewellers Vs. ITO, which emphasized that when books of accounts are accepted, there is no basis for treating deposits as unexplained.

- Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (AO) had not rejected the books of accounts of the assessees and had not pointed out any deficiencies. The cash deposits were recorded in the books, which were accepted by the AO.

- Key Evidence and Findings: The assessees provided documentary evidence, including cash books, VAT returns, and bank statements, to demonstrate the legitimacy of the cash deposits.

- Application of Law to Facts: The Tribunal found that the cash deposits were duly recorded in the books of accounts and were supported by legitimate business transactions. The AO's inference of circular transactions was deemed baseless.

- Conclusions: The Tribunal concluded that the cash deposits were not unexplained investments and deleted the additions made by the AO under Section 69.

3. Alleged Circular Transactions

- Relevant Legal Framework and Precedents: The concept of circular transactions involves using a series of transactions to disguise the true nature of funds, often to evade taxes.

- Court's Interpretation and Reasoning: The Tribunal examined the transactions involving purchases from the father's business and subsequent gifts. It found that these transactions were independent and supported by documentary evidence.

- Key Evidence and Findings: The assessees provided evidence of VAT payments, gift deeds, and bank statements to support the legitimacy of the transactions.

- Application of Law to Facts: The Tribunal found no evidence of tax evasion or circular transactions, as the purchases and gifts were legitimate and independently verifiable.

- Conclusions: The Tribunal rejected the AO's inference of circular transactions and upheld the legitimacy of the assessees' transactions.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: "It is well settled law that once the assessing officer accepts the books of accounts and the entries in the books of accounts are matched, there is no case for making the addition as unexplained."

- Core Principles Established: The judgment reinforces the principle that when books of accounts are accepted and transactions are duly recorded, there is no basis for treating cash deposits as unexplained investments.

- Final Determinations on Each Issue: The Tribunal condoned the delays in filing the appeals, rejected the AO's findings of unexplained investments under Section 69, and dismissed the notion of circular transactions, thereby allowing the appeals.